Discuss the importance of the statement of cash flow. Discuss the decisions that are made based upon this information.

Statement of cash flow reports sources and uses of cash for an entity and provide an entry for the cash balance shown on your balance sheet. Also statement of cash flow knows where the cash comes from is important in projecting whether cash will be generated from those sources in the future. In addition it also must knowing where the cash goes is important in assessing the organization’s future cash needs.

The decisions that are made based upon this information: Is the company generating enough cash from normal operations to continue operating and to make required payments to creditors? Will the company generate sufficient cash for future expansion? Is the company generating sufficient cash to pay future dividends?

The purpose of the statement of cash flows is to provide an entry for the cash balance shown on your balance sheet.
The statement of cash flows is divided into three specific areas: cash flows from operating activities, cash flows from investing activities, and cash flows from financing activities. Let's take a quick look at each, hopefully you will then be able to differentiate which area your will tell you the most about the health of your business, or if just one area can provide that much information.

The area of cash flows from operating activities is the meat and potatoes of the statement of cash flows. This area will show you if your sales, your cash receipts, and inventory and your accounts receivables are experiencing any dramatic changes, if your sales are to a great extent credit sales, and if your inventory is shrinking. A good manager or business owner will watch this area closely for suspicious changes, or abrupt changes.

The area of cash flows from investing activities will provide you with a quick